Soft demand keeping ethylene margins depressed - US analyst

HOUSTON (ICIS)--Deteriorating demand will keep ethylene margins from growing year on year in 2013, a US investment analyst said on Friday.

Both spot and contract margins for ethylene have fallen by about 50% since March, said Laurence Alexander, an equity analyst with Jefferies.

“Ethane prices have remained low despite most crackers coming back on line, with effective utilisation rates still near 100%,” Alexander said in a research note. “Destocking in Europe [where utilisation rates are 72-75%] and Asia should continue to put pressure on global ethylene prices in the coming weeks/months.”

Additionally, he said ethane will be highly advantaged over other ethylene feedstocks in 2013, with supply outpacing demand and a lack of export capacity.

Deutsche Bank analyst David Begleiter said the soft demand was worsened by inventory destocking because buyers are holding out hope for lower prices in the future.

“With macro headwinds being partially offset by raw materials costs which are declining [ethane, propane, propylene or decelerating [titanium dioxide], our expectations are for modest earnings improvement in [the second half of 2012],” he said in a research note.

“However, we believe demand improvement will be limited as most companies we have spoken to are pointing to government stimulus [in the US, China and Brazil] as the key driver of this improvement.”